Today's Veterinary Business

OCT 2018

Today’s Veterinary Business provides information and resources designed to help veterinarians and office management improve the financial performance of their practices, allowing them to increase the level of patient care and client service.

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Your Equipment
Buying a new piece of equipment
represents a much smaller invest-
ment than a facility purchase or
expansion. If equipment breaks
or becomes quirky, replacing it is
a no-brainer. Do it. Your doctors
and staff need the equipment to
provide care to patients.
However, don't buy something
new just to attract a buyer. Do you
really need an underwater tread-
mill when you plan to retire in six
months? Not unless the existing
treadmill is broken. Again, con-
sider how quickly the equipment
will pay for itself. Something as
large as an underwater treadmill
will require an investment beyond
the equipment itself. Consider the
costs of installation, staff training
and maintenance and the need to
educate clients about the benefits.
Replace your workhorse equip-
ment as necessary, but don't buy
new equipment just to have new
equipment. If the equipment you
purchase turns out to be some-
thing the buyer doesn't want, the
practice becomes less attractive.
Sales reps are experts at
making an equipment investment
sound appealing, and you might be
tempted by potential tax savings.
Buying equipment or other de-
preciable assets is a common tax
strategy. The principle behind it is
that the allowable accelerated de-
preciation expense taken on new
equipment will reduce your taxable
income and therefore, the amount
you must pay in income taxes.
Remember that you will not
have a dollar-for-dollar reduction
in income taxes. A $50,000 piece
of equipment, assuming you can
deduct the entire cost on this
year's tax return, does not mean
your tax bill is reduced by $50,000.
It means that you will have $50,000
less in taxable income. Take the
decision making beyond the desire
to simply lower taxes. Will you use
the equipment immediately and at
full capacity?
By no means should you enter
into a new, long-term equipment
lease unless you are fully pre-
pared to make the lease payments
yourself. This advice applies both to
equipment that is leased outright as
well as relationship leases — those
agreements that provide equipment
at little or no cost provided certain
usage levels are maintained. Any
agreement that requires a practice
buyer to continue payments after
the sale should be avoided because
these payments reduce the price a
buyer can pay for your hospital.
Liabilities such as these are
frequently paid in their entirety
by the sellers with the proceeds
they receive from the practice sale.
Occasionally, and assuming the
loan can be assigned, the buyer will
agree to pay off the loan. However,
consider this large caveat: For every
dollar in equipment loans the buy-
er assumes, there is a dollar-for-dol-
lar reduction in the amount they
can pay for your practice. Think
about it. Buyers can buy the prac-
tice on a debt-free basis, meaning
the only loans they have relate to
the acquisition, or they can pay less
for the practice and take over the
balance of other loans.
Your Software
One piece of equipment that you
need to evaluate is your practice
management software. Has the
program kept up with your current
practice needs? Is it expandable to
accommodate a growing practice?
If you use an older program that is
no longer supported, a buyer will
have to upgrade or replace it. Also,
the use of paper charts signifies
to a potential younger buyer that
your practice has not kept up with
the times.
Before you put more money
into your practice, evaluate how
quickly the investment will con
-
tribute to the bottom line. Invest in
things that fit with the practice as it
is now, not what a potential buyer
might wish to do with it.
Money Matters columnist Leslie A. Mamalis is the owner and
senior consultant at Summit Veterinary Advisors. Learn more at
www.summitveterinaryadvisors.com.